By Matt Wirz

Wall Street's first public bitcoin-backed bond sale hit a snag after the cryptocurrency's recent plunge.

Bankers at Jefferies have been pitching big investors for months on a $188 million bond sale backed by thousands of loans that crypto lender Ledn made to individuals. Ledn's customers put up cryptocurrency as collateral for one-year loans, and the bond sale would give the company more money to lend.

But Ledn recently had to liquidate about one-quarter of the loans meant to back the deal, a person familiar with the transaction said. The forced sales happened after the price of bitcoin plunged by 27% since mid-January, triggering margin calls on the loans.

Asset-backed bonds -- often associated with the 2008 financial crisis -- are enjoying a renaissance as investors including big insurers and fund managers seek higher returns than conventional bonds offer. Ledn's bonds are expected to pay 3 to 6 percentage points more than benchmark rates, according to data provider CreditFlow.

Jefferies, a longtime Wall Street underdog on a mission to get bigger, has been among those offering more types of asset-backed securities, including some untested structures that are harder to assess for potential risks. The bank also has made a push into crypto dealmaking, advising trading platform NinjaTrade last year in its $1.5 billion sale to cryptocurrency exchange Kraken.

Jefferies originally told potential investors the Ledn bonds were to be backed by $199 million of bitcoin loans and $1 million of cash. The mix has since changed to about $150 million of loans and $50 million of cash, the person familiar with the transaction said.

The bond deal is still on track to close on Feb. 18, according to S&P Global Rating, which rated the bonds. Ledn must now extend new loans with the liquidation proceeds to generate interest income needed to pay bondholders.

"The liquidation and replenishment mechanics are designed to protect noteholders' capital, not expose it," Ledn Chief Executive Officer Adam Reeds said. " Ledn has operated through nearly a decade of volatility without principal losses on liquidations."

The episode shows the challenges of creating a marketplace for securities backed by assets as unstable as cryptocurrencies. It is unusual for an issuer of asset-backed securities to liquidate so many of the loans backing them, especially before the bonds are sold to investors.

Typical bond analysis relies on historical performance to calculate default probabilities, "however, for Ledn, this methodology is limited by both a short performance history and a lack of borrower credit data," S&P said in a Feb. 9 report.

Ledn was founded in 2018 by two bitcoin miners, Reeds and Ledn Chief Sales Officer Mauricio Di Bartolomeo. Many of its borrowers use their loan proceeds to buy more bitcoin. The "balloon" loans carry high interest rates -- averaging about 11.8% -- but borrowers don't have to pay anything until their debt comes due.

If the price of bitcoin falls, pushing the amount of the loan past 70% of the value of the collateral, Ledn demands the borrowers post more bitcoin. If the loan-to-value ratio exceeds 80%, Ledn automatically liquidates the bitcoin to pay off the loans, giving any leftover proceeds back to the borrower.

So far, the mechanism has worked. Ledn has liquidated 7,493 loans in its seven-year history at a maximum loan-to-value of 85% and has never experienced a loss, according to S&P. About 20% of the borrowers with loans backing the bonds also opted to store extra collateral that can automatically be used to top up their loans if bitcoin's price falls.

Some borrowers of loans backing the new Ledn bonds topped up and others repaid them early, avoiding liquidation and keeping control of their crypto, the person familiar with the transaction said.

The danger is that an even bigger drop in bitcoin prices could overwhelm the market. S&P said in its report that Ledn also has a conflict of interest because of its history of automatically rolling loans that come due into new loans, allowing unpaid interest to pile up and potentially increasing default risk. If 79% of loans default, bondholders could lose about one-third of their money, according to the ratings firm.

Ledn previously raised capital by selling equity, as it did in November when it took a strategic investment from Tether.

Write to Matt Wirz at matthieu.wirz@wsj.com

(END) Dow Jones Newswires

February 10, 2026 14:00 ET (19:00 GMT)

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